ICRA expects Rs 25,000 to Rs 30,000 crore auto component investment in FY26

Rating agency ICRA expects investments worth Rs 25,000-30,000 crore from auto component suppliers next fiscal. 

“ICRA’s interaction with large auto component suppliers indicates that the industry is estimated to spend Rs 15,000-20,000 crore in FY25 and another Rs 25,000-30,000 crore in FY26. The incremental investments would be made towards new products, product development for committed platforms and development of advanced technology and EV components, apart from capex for capacity enhancements and upcoming regulatory changes. R&D, though, is still at an average of 1-3% of operating income, significantly lower than the global counterparts,” said Vinutaa S, Vice President and Sector Head – Corporate Ratings, ICRA Limited. 

According to Vinutaa, ICRA expects auto ancillaries’ capex to hover around 7-8% of operating income over the medium term, with the PLI scheme also contributing to incremental capex towards advanced technology and EV components.

Notably, the rating agency expects the revenue growth of the domestic auto component industry (represented by a sample of 46 auto ancillaries with aggregate annual revenues of over Rs 3,00,000 crore in FY2024, accounting for close to 50% of the industry) to ease to 7-9% in FY2025 and 8-10% in FY2026, from the highs of 14% in FY2024. 

“Operating margins are expected to remain range-bound and hover at 11-12% in FY2025 and FY2026, supported by benefits from operating leverage, higher content per vehicle and value addition while remaining vulnerable to any significant unfavourable movements in commodity prices and foreign exchange rates,” says the rating agency. 

Meanwhile, ICRA says that at present only 30-40% of the EV components are localised in the domestic market. “Demand from domestic original equipment manufacturers (OEMs), which constitutes over half of the industry revenues, is estimated to grow by 7-9% in FY2025 and 8-10% in FY2026. Part of the growth would stem from the premiumisation of components and higher value addition. Growth in replacement demand is pegged at 5-7% in FY2025 and 7-9% in FY2026, driven by an increase in vehicle parc, higher average age of vehicles/used car purchases, preventive maintenance and growth in organised spare parts, among other reasons,” says Vinutaa. 

Regarding the reciprocal tariffs likely to be imposed by the Trump administration on India, ICRA says that the impact of any import tariffs on Indian auto component exports remains monitorable. 

According to Shamsher Diwan, Senior Vice President and Group Head, of Corporate Ratings, ICRA Ltd, while the import tariffs will have a substantial impact initially India will remain a competitive manufacturing base, especially for metal castings and forgings. 

“Even if a certain amount of tariffs are imposed on raw materials or on the finished goods, our sense is that while in the initial phase, there may be some knee-jerk impact or disruption, but gradually one will have to come to terms with the fact that, you know, India will remain a very competitive manufacturing base for any of the auto markets, and a large part of that cost increase. Will get absorbed by, ultimately, the tier-one or the OEMs themselves,” said Diwan.